Gold May Be Down but Bulls Aren't Counting It Out

As investors collectively wring their hands over the outcome of the U.S. "fiscal cliff" negotiations, one asset in particular has emerged as one of the biggest losers: gold.

Both safe-haven and risk asset, the yellow metal had no shortage of fans up until very recently. Washington's efforts to rein in its budget deficit has forced gold's nearly 12-year rally to hit the craggy rocks.

If the current trend continues, gold will see a relatively meager 5.7-percent gain this year – its lowest return since 2008 and just a fraction of its nearly 30 percent yield in 2010. On Friday, gold traded around $1660 an ounce – well below the record high of $1920 reached in September 2011.

Some say the correction is largely due to uncertainty over the fiscal cliff, when tax increases and spending cuts kick in.

Despite the correction, gold bulls say key fundamental factors still argue in favor of gold resuming its uptrend next year,with government policy at the top of that list.

"Since 2008, gold has correlated the best with our national debt ceiling," said Edmund Moy, chief strategist of Morgan Gold and a former director of the U.S. Mint from 2006 to 2011. He expects bullion to make a new run next year.

"Whenever gold has been above or below the debt ceiling, it will normalize to wherever that debt ceiling is," he said, explaining why the correction had been so deep. "If Congress lifts that debt ceiling to $18 trillion, I see gold rising to $1800," he said.Gold's safe-haven properties are also expected to reassert themselves after the fear of higher taxes abates and worries about global instability come back into focus.

"Gold prices have been an economic and political barometer for the well being not just of the economy, but of the world,"said George Gero, vice president of global futures at RBC Capital Markets told CNBC's "Street Signs" this week.

"There have been plenty of problems,and we're going to return back to basics after the fiscal cliff," he said. "Sometime after January, people are going to take a second look at the world and say 'you know what, I do need someplace to put my money'."

As a result, the outlook for gold is "still positive," Dominic Schnider, head of commodity research at UBS Wealth Management, told CNBC's "Squawk Box" earlier this week.

"All of the elements for higher precious metal prices are here. The Fed is continuing its stimulus, balance sheets are exploding around the world, and real interest rates are in negative territory."